Back in the thick of it
Jamie Dimon is back in the saddle after battling cancer – just in time for the JPMorgan boss to face challenges old and new. Overall results in the third quarter released on Tuesday missed estimates thanks to rising costs. The group’s investment bank is punching below its weight. Cybersecurity is a growing worry. Even the timing of the bank’s earnings was off.
That, at least, doesn’t look like it was JPMorgan’s fault. Instead, shareholder.com, a Nasdaq unit, simply released one of the bank’s documents a couple of hours early. Nonetheless, it’s hardly an auspicious start to earnings season for a bank or an industry that has already displayed a penchant for procedural mishaps – and worse.
Increased expenses, though, are a concern. The bank is now likely to miss its $58 billion target for the year. That’s in part the result of a $1 billion legal charge in the three months to September, much of which is the firm’s best estimate for what it might have to hand over to settle its share of an industry-wide investigation into foreign exchange shenanigans.
These payouts are, at least, declining for JPMorgan. The cost of combating cyberattacks, though, is on the rise. The bank was recently assailed by hackers who managed to steal personal information – though no data on account or social security numbers – on 76 million households and 8 million businesses.
At a conference last week Dimon revealed that he is doubling the budget to deal with such threats to $500 million. Just how much higher that might need to go is anyone’s guess. But banks are not just affected by their own security problems. JPMorgan’s third-quarter showing was hurt by the lender’s exposure to a more consequential data breach at DIY retailer Home Depot over the summer.
On top of that, low interest rates are keeping earnings depressed. And the bank’s loan-to-deposits ratio now stands at a low 56 percent. Meanwhile, its investment bank could do with a jolt. Sure, its annualized return on equity of 14 percent for the quarter, excluding legal costs, might sound good.
But the unit has some advantages not all its rivals do. It rakes in far more revenue than Goldman Sachs and Morgan Stanley from trading fixed income securities and currencies – in part thanks to extra business from treasury services, a solid business less prone to market vagaries that now sits in the investment bank. And the entire division’s compensation ratio, at 32 percent, is the lowest of its peers. Were Goldman’s pay to be that low, its RoE in the first half of the year would have been 4 percentage points higher, beating JPMorgan’s.
That, at least, is more of a luxury problem to solve. Nonetheless, Dimon has his work cut out.